May 9, 2006

Blackbaud Income Falls

Kyle Stock  /  Post and Courier

Stock-option expenses drive 48% drop in 1st quarter as revenue rises

Stock-option expenses drove income at Blackbaud Inc. down 48 percent in the first quarter, although revenue at the Daniel Island software-maker surged and its executives Monday called the results a strong start to the year.

Blackbaud posted $5.7 million in net income, or 13 cents per share, in the first quarter, compared with $10.6 million, or 23 cents per share, in the same period last year. Analysts had expected the company to earn 15 cents per share, according to a survey by Thomson Financial.

Expenses associated with granting stock to employees cost the company almost $2 million in the recent quarter but added $7.6 million to the bottom line in the first three months of last year. "The headline could read, 'Another good quarter at Blackbaud' or 'Earnings per share dropped 40-some percent,'" Blackbaud CEO Marc Chardon said Monday. "Both of those are true. ... But from our perspective, we did have a great quarter."

Revenue rose from $37.4 million to $43.7 million, a 17 percent boost. Chardon said all aspects of the business posted gains as more nonprofit organizations bought the company's fundraising software and training services. Blackbaud also continued to realize sales gains from a suite of new products and from bigger clients, which it started targeting about two years ago.

"Basically, across the board, everything did quite well," said CFO Tim Williams. Williams did, however, pull out a 2-inch binder of documents Monday detailing a new rule on how companies are required to account for stock options. The non-cash costs and credits that come with giving away stock have swung Blackbaud earnings wildly since it went public in July 2004, and Monday's results were no exception.

Without stock options and one-time items, Blackbaud would have posted $7 million in profit, a 17 percent increase over the year-earlier period. "I get tired of old ladies coming up to me in the grocery store and offering me a cane or saying, 'I'm sorry,'" Chardon said. "The company is doing fine."

About 38 percent of Blackbaud's 1,000 or so workers have been granted shares of the company or options to buy stock at a set price. Blackbaud executives said the equity grants give workers an incentive to boost the bottom line and helps retain them, since many of the shares vest over time. "I like to think of it as aligning interest," Williams said. "It aligns their interests with that of investors."

Many Blackbaud employees have been getting rich off stock options, since shares of the company have more than doubled since they hit the market. Five of the company's top managers cashed in stock for almost $19 million last year. In a filing with the federal Securities and Exchange Commission last week, Blackbaud said it may have to issue more stock to keep key employees. The company is asking stockholders for permission to issue another 2 million shares.

Blackbaud increased its full-year earnings guidance Monday to a range of $51 million to $53.2 million, or 70 to 73 cents per share, excluding stock-option expenses and other "non-operational" items. Blackbaud also said it will pay a dividend of 7 cents per share on June 15. The company released its results after the close of trading on the New York Stock Exchange Monday. During Monday's session, shares of Blackbaud closed at $20.84, down 45 cents for the day but up 22 percent for the year to date and almost one and a half times their value when the firm went public.